Are Credit Markets Reopening?
So asks Floyd Norris:
“At first glance, it appears that the answer is yes, at least for high-quality corporate borrowers. The volume of investment-grade corporate bonds issued in Europe and Asia in the first three months of this year was the highest ever for any quarter, while in the United States the total fell just short of the record.
But that glance is deceiving. Corporate bond markets around the world are functioning in large part because of government guarantees. Eight months ago, before the collapse of Lehman Brothers and the rescue of the American International Group, the idea of a government-guaranteed corporate bond would have seemed contrary to basic capitalist principles. Now, such bonds account for a substantial share of corporate bond issuance, generally by banks and other financial companies.”
The key is the chart — this one shows the volume of new bond issues and new syndicated bank loans, by quarter, going back to 2005, in the United States, Europe and Asia.
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Chart courtesy of NYT, Thomson Reuters.
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Source:
Are Credit Markets Reopening?
FLOYD NORRIS
NYT, April 17, 2009
http://www.nytimes.com/2009/04/18/business/economy/18charts.html
See also:
Banking Industry Showing Signs of a Recovery
ERIC DASH
NYT, April 16, 2009
http://www.nytimes.com/2009/04/17/business/17bank.html
April 18th, 2009 at 8:13 am
http://offshoreinn.com/investing/small-business-plans-vs-optimism-about-green-shoots/
Small Business Plans vs. Optimism about “Green Shoots”
Similar to what Mish posted today….I still look through the global economic numbers, and worldwide, again this week, the numbers on orders and sales….Eurozone, Italy, Japan, etc…countries or continents, continue to decline…so if Rosenberg is right about small business that the only green shoots are exports and government…exports are not in the big picture..
http://www.rttnews.com/CorpInfo/EconomicCalendar.aspx
April 18th, 2009 at 8:40 am
A lot of retail investors in my entourage are being advised to jump into high yield bonds. Why?
Thirst for yield and belief that things will bounce back in 2010. Treasury yields are too low and they are getting antsy.
Something tells me that we’ll be at the trough when the bond side of the potfolio collapses and brings the equity weight back in line!
The trillion dollar question: When will this happen?
April 18th, 2009 at 8:50 am
Why would a government backed “corporate” bond be lumped in with real corporate bonds in the first place? As long as liquidity is not an issue, between a treasury bond and a government backed corp I would just buy whichever has a better yield since they have the same default risk. The problem is calling it a corporate bond in the first place – it’s not.
April 18th, 2009 at 9:23 am
well, well, well- check out this headline
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQM1Cmt7cY24&refer=home
makes me think of the John Lennon tune- “Give me Some Truth”
http://www.youtube.com/watch?v=Qn85BeeiwZo
April 18th, 2009 at 10:25 am
I spotted Nassim Taleb strolling around in Georgetown yesterday at about 2.45 pm with an elegant and lovely woman. I thought briefly about rushing across the street and begging him to sign my chest but reconsidered after concluding that after Roubini johnhancocked me there probably wasn’t any room left. The weirdest thing about Roubini is that he puts smiley faces on his ies. Not what I expected.
Based on that sighting and the report that AmenRa linked about a week ago, credit will be…
extended only to those who need to pay off the ones who shall remain nameless (Jacob, is that you?)
April 18th, 2009 at 10:29 am
All of the happy talk about green shoots and all of the phony financials from the banks is not going to put humpty dumpty back together again. But will the rubes buy it and go back into the tent? Time will tell.
April 18th, 2009 at 10:54 am
I used to wonder why there was this fanatical need to believe the worst. I guess it’s part of some people’s genes to believe that everything is a conspiracy, that good is really bad, that black is really white, and that at every and all times, they are being lied to.
The point of government intervention is to stimulate the credit markets. I don’t care if government-backed bonds are helping–that was the whole freakin’ point, and this chart simply proves that Secretary Geithner and Chairman Bernanke have succeeded in turning this economy around.
April 18th, 2009 at 11:09 am
frank,
When a small group of people control how fast or slow the economy goes entirely on how fast or slow the printing press runs belief in conspiracy becomes easy for the rational observer
I’ve said it before on your blog Barry(Jan. 2008 approx.) This is more about regime change than economic crisis. The timing couldn’t have been better.
April 18th, 2009 at 11:16 am
LIBOR continues to fall and further declines are likely below the cycle low. Junk bonds, high yields, and corporate debt has been rallying lately. The Fed still has a huge buying power, despite a substantial Fed’s balance increase. Mortgage applications for purchase hit three-month high and most likely high afford ability and interest in foreclosed homes will continue fueling the trend. No TSLF players – a sign that dealer financing needs are being met through other means. Retails sales were revised higher for the two previous month (March was an early Easter aberration). The inventory of unsold homes dropped in March. “Green shoots” in Feds Beige Book. Empire Survey index on general business conditions has improved. Car sales are better, Ford sales beat expectations. Bank cash is surging again and most likely will continue to increase secondary to the Fed’s securities purchase program. Etc…
In short, macro picture is improving dramatically.
P.S. Since many of your readers love to bet against US financial system by buying SKF, it would be interesting to hear your objective opinion about this chart. (A funny coincidence of $66.6 for SPY March bottom and SKF old resistance is just a coincidence – I do not believe in the Number of the Beast from the Book of Revelations) .
Do you still believe in your (and 90% of other market participants that missed the rally) “This is a bear (sucker) rally” after looking at the chart (at least this is not what the chart is saying)? Do you recommend your Fusion IQ clients to sell this rally? Just curious…
http://i41.tinypic.com/30wkwfr.jpg
April 18th, 2009 at 11:17 am
franklin411 Says:
April 18th, 2009 at 10:54 am
I don’t care if government-backed bonds are helping–that was the whole freakin’ point, and this chart simply proves that Secretary Geithner and Chairman Bernanke have succeeded in turning this economy around.
comment:
——————–
Their intent may be pure, and their actions are certainly well intentioned, but only scoring a change in the second derivative, obfuscated by creative accounting and trading profits, is less beneficial to the entire economy than you having a rummage sale in your driveway. Masticate on that.
April 18th, 2009 at 11:30 am
We have the richest, most powerful people in our culture being propped up by the rank and file, who are forced to do so, under the color of law, and who can least afford it. Governmental guarantee of corporate bonds is exactly what this is.
Yet the powerful manage to get the most imbecilic of the rank and file to come out and publicly demonstrate their support of their own buggery, in the form of “tea parties”.
Mind boggling.
franklin411:
Your “good rally” has cost those not involved and who will reap no reward. Why should I or anyone else support your career as a day-trader? This is not capitalism. It’s fascism. If you like and/or support that political philosophy, that’s your business, but it’s shows that you possess glaring character, ethical and intellectual defects.
I guess the relative merits of rape and robbery are different, depending on which whether you’re a victim or a perpetrator.
April 18th, 2009 at 11:35 am
I follow a few sectors (not financials) as a portfolio manager and I am seeing companies with fairly high leverage get bond deals get upsized and come in at lower rates than initially thought. People always doubt it when the credit cycle starts to show signs of turning, but it certainly is showing signs of turning. As always, there could always be something that shocks the system going forward and causes this improvement to retrench, but that’s what makes investing hard. I agree with the seemingly consensus view that the equity market rally is ahead of itself, but that doesn’t neccessarily mean we are heading back to the lows or below them. Felt like stocks were being sold indescriminately at ridiculous prices at S&P 666. Wish I would have bought more there, but its always difficult psychologically when you’ve gotten pummeled for every stock purchase you’ve made prior to that point.
April 18th, 2009 at 11:37 am
What little angel is going to fall from the sky and bail out the financials in Q2? Will more Citi debt become so impaired that they reap another bonanza on their bottom line? Will BoA or another bank decide to get on the gain on debt impairment train, since most investors and most in the business press don’t notice such things?
Since another 25%+ rise in the stock indexes is unlikely, will they collaborate and crash the markets and make money on the short side; then book more trading profits when they end their bear raids and the investors return? Will FASB deliver another rule that allows earnings to be booked out of thin air?
Short of this good fortune, banks will have a lot of explaining to do in Q2. To wit: “You did so well last quarter … What happened this quarter???” Mark to market reversals appear to be the only chance for them, at this time.
April 18th, 2009 at 11:50 am
It strikes me that this situation is quite similar to the Great Depression, when the size of banks’ loan books was flat at about $20-25 billion from ‘32-’44. (Down from $43 billion in ‘29.) Didn’t really take off until ‘45.
Meanwhile the government increased its lending by at least $5 billion over that period.
Today it’s guarantees. Then it was direct loans. But it comes to the same thing.
I wrote this up at more length with links and data here:
http://www.asymptosis.com/banks-who-needs-em.html
April 18th, 2009 at 11:56 am
The problem is not that “banks aren’t lending”…that is a MSM induced hallucination…it’s that nobody has a good use for the money. That is why 36,000 sq ft of retail sits idle for years in a downtown mall where Borders closed…why 180,000 sq ft will be vacant for a long time when Fortunoff closes next door…why 38,000 sq ft that was Circuit City will be vacant for a long time. Get the picture? The boom caused massive overbuilding and overcapacity. Take housing…during the heights of the bubble, 2 Million housing related jobs were created…not one is needed any longer. I visited Japan in 1999 and there was a very large building in Toyko…I asked my friend what it was…he said it was empty…built in the bubble time. That is our fate here. It is entirely unavoidable. All this debt creation to avoid the outcome is going to make the problem seem a little better in the short run, but make it worse in the end and it will last longer.
April 18th, 2009 at 12:15 pm
dumb question and maybe i missed it. but what does the color scheme mean? and while i understand that the government must try to reassure and and add confidence to consumers (aka employees) otherwise no amount of money or tax cuts or any thing else will ever make a recovery of our economy possible. i think the biggest down draft is the income deflation that we have been in for 8 or more years. and to make up for that we went into debt. but since the credit markets aren’t going back to where they were since wall street can’t make losses from their bad loans with fees, making our economy go back where it was is impossible. and has any body else seen the daily show where the TARP cop was on? That makes one wonder a lot more about our wall street friends and their collaborators in the government? and deregulation fad?
April 18th, 2009 at 12:26 pm
Steve Barry Says:
April 18th, 2009 at 11:56 am
The problem is not that “banks aren’t lending”…that is a MSM induced hallucination…it’s that nobody has a good use for the money.
reply:
————–
Good point. I was aware of that in the back of my mind, but you just woke me up on that. It’s one thing to lay people off because, anecdotally, you couldn’t borrow enough to refinance a credit line or buy new equipment. It’s another thing to create new jobs to rehire all those who formerly worked in the now empty commercial space. Taking this into consideration with the poor quality of earnings and this is going to be L shaped for years to come. Fortunately, the market indexes should look like the Rockies for a long time to come. Apparently, nobody reads the papers and, if they did, the papers don’t print much good information.
April 18th, 2009 at 12:53 pm
Is this a sucker’s rally? I think so…light dollar volume…not based on fundamentals…based on beating reduced expectations…seems like distribution from smarter money to suckers. More proof can be found in today’s Barrons…here’s the link (don’t know if subscription is required) for insider transactions. It is on page M10 of the print edition.
For those who can’t see it, Sales to Buys literally just shot off the chart…it spent the last 7 months ranging from 0-10…it just shot up to around 40.
April 18th, 2009 at 1:08 pm
And the moral hazard of all this govt backing of debt is HUGE! We just don’t learn our lessons. It’s a large part of what got us here. Why worry about credit worthiness when you know that Uncle Sam is backing it? And there’s no real downside for the executives who make the decisions, other than getting half the millions they might have if it didn’t all collapse on itself.
Yes we need to do something to keep things from going completely to hell. But we’re getting to a point where we’re trying to prop everything up. There’s been such a misallocation of capital and resources over the last couple of decades and we’ve repeatedly tried to cushion ourselves from even the mildest of recessions. Now we’ve finally reached the tipping point and the economic dislocations are so huge that they can’t be stopped. We are reaping what we’ve sown and no amount of denial will stop that. History will not treat us kindly.
April 18th, 2009 at 1:10 pm
Steve
Yeah, I noticed those articles about all that insider selling too. Very telling along with the share issuance by the banks and REITs. They’re trying to reap what they can while this delusional sentiment wave is at it’s height.
April 18th, 2009 at 1:14 pm
Steve Barry Says:
April 18th, 2009 at 11:56 am
The problem is not that “banks aren’t lending”…that is a MSM induced hallucination…
Tell that to General Growth Partners, who just had to file for BK. Even though their properties are high income producers and easily cover their debt service, no one would refinance properties whose loans matured. When Sam Zell thinks the price of commercial real estate is going to be down at least 30%, who wants to lend into that kind of environment?
April 18th, 2009 at 1:16 pm
franklin411 Says:
April 18th, 2009 at 10:54 am
“…and this chart simply proves that Secretary Geithner and Chairman Bernanke have succeeded in turning this economy around.”
Sorry but that’s nonsense. If it were only so. We’re a long way from turning around. This debt deflation ship is much bigger than that. And there will be people hurt by jumping in front of the train thinking it’s slowing down and all is well (e.g. buying the top of this rally, trying to catch a falling knife in the housing market, etc.).
Of course when it doesn’t pan out the way you see it the excuse will be that all the naysayers pulled it back down. But that won’t fly.
April 18th, 2009 at 1:30 pm
http://i41.tinypic.com/30wkwfr.jpg
FWIW, technical analysis on a derivative is meaningless.
Look at something representative of the underlying like XLF or IYF.
April 18th, 2009 at 1:45 pm
“FWIW, technical analysis on a derivative is meaningless.
Look at something representative of the underlying like XLF or IYF.”
Yep, the leveraged ETFs cannot be assessed over long periods of time, just as they should not be held for long periods. Many are finding that out the hard way, and are befuddled by the results. I’m still amazed to see market professionals advocating some of these things as holdings vs. purely trading vehicles. And frankly I’m worried about the effects that these things are having on an already volatile and technically driven market. But I don’t really have the expertise to assess that. I think time will tell that they are dangerous to both individual investors and the market overall.
April 18th, 2009 at 1:51 pm
Does anyone here remember Larry?
I’d love to see a debate between Larry and Franklin.
April 18th, 2009 at 1:52 pm
On another note, ran into another acquaintence last night who was recently laid off by his company. Very experienced, strategic VP of his firm, about 50 years old, has two kids at home. Says the firm is likely to not make it. I seem to finding out about more and more people who are getting the pink slip lately. Sort of brings it closer to home that we’re not out of this mess by a long shot. If this thing gets to 10-12% unemployment, the fundamentals are going to get really ugly and the stock market will eventually reflect this. Just give it time. We haven’t even begun to see the companies fail in the numbers they will fail this year and next year (and maybe even in 2011).
April 18th, 2009 at 2:02 pm
If this thing gets to 10-12% unemployment, the fundamentals are going to get really ugly and the stock market will eventually
—————
Here in Canada, where I live the economy is still going strong yet our street is full of For Sale signs: separations or boomers moving to the countryside.
I’m just amazed at the upcoming number of couples who will be going from a 6 figure income to 30-40K in retirement.
Add this to those losing their jobs and imagine the impact on retail.
April 18th, 2009 at 2:10 pm
I like what constantnormal said on The Big Picture
February 18th, 2009 at 2:34 pm
http://www.ritholtz.com/blog/2009/02/homes-still-too-pricey-to-stabilize/#comment-146630
try this:
S = total supply = consumer debt + commercial debt + government debt
We are a debt-based society, with all money having its basis in created debt. This is not bad, so long as the amount of debt is “right-sized” for the economy, neither too much (devaluing the currency and stoking inflation) nor too little (causing a liquidity crisis and stoking deflation). The amount of physical money, in paper bills and currency, is insignificant and can be ignored.
When Greenspan got lead-footed on the monetary (debt) printing press to pull us out of the post-Y2K recession (a questionable action for sure), all that excess credit fueled speculation and inflation in a lot of things, among them housing and stocks. Combine that with the abrogation of any regulatory/oversight responsibilities in society as a whole (it was the mantra of the neocon revolution), and you also get a bull market in fraud, which intertwined with the flood of easy money, creating such tailor-made-for-crookery vehicles as CDOs, CDS’s, and SIVs, and then Wall Street investment bankers (the organized crime of the financial world) commoditized them and sold them to the world.
So we had this immense bubble/cloud of vaporous phony “investment” vehicles out there, trillions and trillions of dollars worth, and eventually it popped.
Faced with a collapsing global economy, the central bankers have decided not to try to “right-size” the amount of money(debt) to fit the new reality , but try to maintain/restore the prior status quo by printing money(debt) to offset the amount of debt that has disappeared in a puff of smelly smoke.
That is why the consumer and commercial debt pools are cratering and the government debt pool is exploding, and why Bernanke can say that (when viewed from the perspective of the past ginormous bubble of money(debt) being “normal”) he’s not “stoking inflation”. These large amounts of money/credit/debt (debt is activated credit) will be circulated by the highly efficient China money pump, where China buys Treasuries from US, then we buy goods from the Chinese, sell them in this country, and via the miracle of middlemen, multiply the demand for money and spread it throughout our consumer-oriented economy. Problem is, that pump is broken, at the moment, with consumers scared witless and buying little.
If you believe that the true real economy is a lot smaller now, you might well choose to believe your own lyin’ eyes before you believe an academic Ahab intent on pursuing the Great White Whale of his academic theories.
Myself, I tend to think that the tsunami of unemployed are sending a clear message that the global economy is a LOT smaller now, and that attempting to quickly restore the previous state of things is a Fool’s Errand.
Perhaps it is more important to remove excess capacity than to try and reflate the debt pool.
***********************************************
Its clearly evident that Obama and Wall St are doing all they can to reflate the debt pool so they can produce more Chocolate Covered Cotton.
by billmon
Wed Feb 18, 2009 at 10:09:39 PM PST
http://www.dailykos.com/story/2009/2/19/05524/5446/499/699191
Couple excerpts:
To understand why Big Shitpile is just that – with hardly any ponies hidden at the bottom for eager prospectors to dig up – it worth taking a look at how the stinking heap was created in the first place. As it turns out, I’ve been spending much of my professional time lately studying what happened in the credit markets during the bubble years, so I think I have a slightly better grasp than I did at the time, when I only thought it would lead to a nasty financial crisis, as opposed to Great Depression II.
The broad story is well known, even to the cable TV pinheads: Housing Bubble + Subprime Mortgage Lending + Derivatives = Armageddon. (The numerical illiterates at Fox News would probably add ACORN to that equation.) But even now I’m not sure if many people fully understand just how insanely reckless the carnival was, to the point where future historians will speak of “structured finance” in much the same the way we talk about the bubonic plague.
Bottom line: great big chunks of Big Shitpile aren’t “impaired,” or “illiquid,” or “distressed,” they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored.
April 18th, 2009 at 2:19 pm
The point of government intervention is to stimulate the credit markets. I don’t care if government-backed bonds are helping–that was the whole freakin’ point, and this chart simply proves that Secretary Geithner and Chairman Bernanke have succeeded in turning this economy around.
Seems like this is exactly what we did in 2001-2003 as well as 1998 as well as 1927 as well as before Japan’s great bubble as well as before the depression of 1893…
Government intervention in the credit markets seems to reliably stimulate gross misuse of resources and leads reliably to disaster.
April 18th, 2009 at 2:26 pm
Raise your hand if you think the jobs that are still hemorrhaging out of the economy are ever coming back.
April 18th, 2009 at 2:32 pm
What happens to those corporate bonds when government-backing ceases? Will it ever cease? How will they pull away the safety net any time soon? Answer: they won’t untill some unforeseen event occurs.
Also ran into an attorney acquaintence last night whose focus is corporate bankruptcy. She’s never been busier and expects to remain busy for quite some time. Says it’s not slowing down but just ramping up. All the law firms want in on this area right now, as it is THE hot law practice. Basically lives at her office, workin 6-7 days a week every week.
April 18th, 2009 at 2:32 pm
Bottom line: great big chunks of Big Shitpile aren’t “impaired,” or “illiquid,” or “distressed,” they’re worthless, now and forever – unless the peak real estate values of the bubble can miraculously be restored.
All the more reason to shove them down the throats of the taxpayer.
April 18th, 2009 at 3:18 pm
ok- fact check- does everyone remember how the market climbed to 14,000 in 2007? Was everyone incredulous? I certainly was- I kept thinking- what is everyone so excited about? What does everyone see that I don’t see.
That is the difference between sites like this and the hype machine that drives the market. I WANT to put everything I have into shorts- because I think the economy will continue to deteriorate HOWEVER- there is the bias for the market to go up and the market participants wanting the same. So I dabble- I bought some shorts last week after having everything in cash- they didn’t do so well. Also I wished I had listened to Kass (and leftback) on the bottom call- but I was skeptical so did not participate in the market rally.
Investing is tough- mind bending stuff- that always gets me doubting myself- because there is always the opposing view that when pondered on has some merit. Having said all that- I still think that we could be in a lull similar to ‘31 cratering of the stock market. Additionally, from a philosophical perspective, I am angered at what the FED has done to the true savers- who are now making almost ZERO percent interest on their accounts after doing the”right thing”. All with the intent of saving the over leveraged bankrupt risk takers.
check out these quotes from 1929 to 1933- definitely makes you question the experts saying the coast is all clear.
http://www.gold-eagle.com/editorials_01/seymour062001.html
April 18th, 2009 at 3:29 pm
on my previous post- my personal favorite is # 13- eerily similar to what we are hearing now
April 18th, 2009 at 3:56 pm
Transor Z @ 2:26
Outside of the financial sector, I think most will.
(And if the banksters get their way with the politicians, the financial jobs may eventually come back also).
April 18th, 2009 at 3:57 pm
ahab @ 3:29
Opinions of administration officials don’t count.
April 18th, 2009 at 8:31 pm
MA,
you should speak further about: “…who are forced to do so, under the color of law..”
I’m not sure that many capture the nuance of your point..
~~
this: “Bottom line: great big chunks of Big Shitpile aren’t “impaired,” or “illiquid,” or “distressed,” they’re worthless, now and forever.
All the more reason to shove them down the throats of the taxpayer.”–Super-Anon, above
though, is all too true..
April 19th, 2009 at 3:30 pm
“I used to wonder why there was this fanatical need to believe the worst…. black is really white… this chart simply proves that Secretary Geithner and Chairman Bernanke have succeeded in turning this economy around…”
fascinating.
April 26th, 2009 at 2:16 pm
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